Starwood Plunges; NY State May Launch Probe Of LNR Unit

Starwood Property Trust (NYSE: STWD) shares plunged in the afternoon session Monday on a rumor that its LNR mortgage servicing unit may be the target of an investigation by New York State banking regulators.

Regulators will probe commercial real estate loan servicers' conflicts of interest with their bond holders, according to a report carried by Reuters citing anonymous sources.

Keefe Bruyette & Woods' Jade J. Rahmani said a regulatory investigation into the industry might produce "an overhang" for Starwood. But Rahmani added that aspects of the supposed investigation concerning residential mortgage servicing may turn up greater conflicts than LNR's commercial side of the business.

The LNR unit also includes a 7.5 percent stake in Auction.com, which sells homes and commercial property online. The Reuters report said Auction.com will come under "particularly intense" scrutiny.

Rahmani said the Auction.com stake amounts to an estimated $19.4 million on Starwood's balance sheet, or less than one percent of Starwood's equity.

Starwood traded recently at $22.95, down 3.45 percent.